One of the top trends in food and general merchandise retail over the next decade will be the “rising power of Asian and South Asian consumers”— a group that will make up 70 per cent of growth in consumer spending, according to CIBC World Markets.

After a prosperous decade fuelled by the strength of a rising Canadian dollar, CIBC analyst Perry Caicco told a retail conference in Toronto that Canadian retailers will be looking to the increasing influence of those ethnic communities for future growth.

And this will be a bright spot for the sector, which will likely be constrained be stingier, bargain-savvy consumers who are focused on paying down debts.

Caicco said the growth in Asian and South Asian retail spending will likely foster an increase in the number of large-format ethnic grocery stores.

Vancouver business consultant David Ian Gray, of DIG 360 Consulting, said he agrees Asian and South Asian consumer spending growth will reach the 70 per cent level, but only in major markets such as Vancouver and Toronto.

“What I think will evolve by trial and error is a blended approach where in the major markets the idea of mainstream will change. Most think white when you say mainstream, but in Vancouver and Toronto it is certainly a mix.”

He pointed out that as the two cultures continue to influence one another, retailers will need to adapt in order to appeal to both markets. He said a good example of East meeting West happening now is the Bao Bei Restaurant in Vancouver where Chinese food is served in a restaurant that appeals to everyone as opposed to traditional Chinese restaurants with “bare-bones tables and bright lighting.”

“I haven’t seen it (the mix of Asian concepts influencing the broader market) in retail yet but that’s where I think it will go,” said Gray.

Businesses that cater primarily to the Asian market, such as T & T Market, won’t become a destination place for all consumers, but the T & T product will become more common in places like Loblaws, according to the consultant.

Caicco said while the Canadian retail industry has been enjoyed a “largely peaceful and prosperous decade,” the environment is changing and there will be disruptions that will test Canadian retailers in the coming years.

“The most notable challenge is the arrival of a number of ‘strangers’ to the Canadian retail scene. Target is the obvious entrant, but included in our list of “strangers” are the numerous ethnic (largely Asian) large-format grocery stores being built across the country; Walmart’s pickup of 39 ex-Zellers stores and the company’s recent commitment to smaller formats; Nordstrom’s plan to open six stores by the end of 2016, and plenty of international specialty apparel retailers flooding into the country,” he said.

He predicts the competition will be good for consumer choice and prices will come down.

Gray added that consumers pause now and really think about their needs over their wants.

“For western economies this idea of consume, consume, consume has given way to selective consumption. Over the next 10 years of increasing competition, (retailers) will be divvying up a fairly fixed pie,” he said. “Many retailers will perish but those that can adapt to changes in consumer trends will continue.”

Gray gave the example of Please Mum, a children’s clothing store that began in B.C. and at one point had 80 stores. It’s now down to 15 and in receivership. He said the children’s clothing retailer didn’t proactively adapt to its changing environment when competition increased, including the entry of American company Children’s Place.

Over the short term, another factor that Caicco said will squeeze retailers is the dollar, which has fallen below parity with U.S. currency and is beginning erode their purchasing power on a wide variety of goods.

Grocery retailers will feel it first, Caicco said, but within six months drugstores and dollar stores will begin to feel the pinch. Within a year, clothing and general merchants will also be pinched, he predicted.

“It is much more difficult to turn cost increases into price increases in a highly competitive market,” he added, “so there is a high probability that gross margins will come under increasing pressure.”

Caicco said he expects that diminished margins will cause traditional domestic retailers to consider consolidation. He believes the primary targets for acquisition will include Safeway Canada, the Overwaitea Food Group, ethnic grocers and drugstore operators that are dealing with ongoing provincial government pressures to lower the prices of generic drugs.

Other consumer trends likely to add competitive pressure in the retail sector include:

• the trend by Canadian consumers to “purchase on promotion.” Debt-conscious Canadians are “increasingly addicted to deals” and “more skeptical than ever about regular prices,” Caicco said.

• E-commerce will continue to rise. Although retail e-sales are a fraction of the estimated $270-billion merchandise market in Canada, that could soon change. Caicco predicts ecommerce could grow from an estimated $4 billion now to $50 billion in 10 years.

• Caicco noted that “a large number of Canadian retailers (Loblaws, HBC, Sears, Canadian Tire, RONA) probably have too much space and would happily re-purpose millions of square feet. He said this would open the door for multinational merchants or brands looking for an inexpensive foothold in Canada.

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